As Viacom gears up to report second-quarter earnings next Thursday, the top brass are working overtime to fix what they concede to be a trouble spot: Infinity Broadcasting. But some on Wall Street are wondering if Viacom is plugging the right leak.
Three months ago, Viacom operating chief Mel Karmazin said on an earnings call that Infinity was the one big laggard in an otherwise strong first quarter, and he placed the blame squarely on the troubled radio company’s sales staff.
Karmazin quickly fired Infinity operations chief John Fullam, replacing him with Joel Hollander, a former top exec at programming giant Westwood One. Then, earlier this week, Hollander went to work on the sales department.
The heads of East Coast and West Coast sales both ankled, and insiders said Hollander and his deputies went through the department cluster by cluster, pulling sales figures for each employee and methodically culling the underperformers.
Many on Wall Street would point to the moves as yet another example of Karmazin’s uncanny ability to swiftly identify and address trouble spots in his operation. But in a note to investors on Thursday, JPMorgan analyst Spencer Wang suggested there may be other factors at play in Infinity’s recent woes.
Wang conceded Infinity’s sales staff haven’t been producing on par with their peers. According to his research, Infinity generates $578,000 in revenue per salesperson, compared with an average of $648,000 for the sector. But he noted the difference is in part by design, since Infinity’s strategy has been to employ a larger sales force with variable commissions in a bid to grab market share.
Wang argued the problems may have more to do with sagging ratings at some underperforming stations. That’s a harder problem to fix, since it involves major restructuring within the troubled clusters, and could take one or even two years — delaying the unit’s recovery time, he said.
Strong ratings seen
Infinity rep Dana McClintock on Thursday countered that the company’s most recent ratings numbers were consistently strong across its 185-station network. He noted, however, that it is difficult to compare the ratings of one station group to another, given the unique characteristics of each station.
Given Karmazin’s quick action in the sales department, investors are likely to know sooner rather than later whether the problem lies there or elsewhere within the Infinity organization. For the moment, they seem to be willing to give Viacom the benefit of the doubt: The conglom’s shares have moved up steadily from lows near $30 in early spring to a recent trading range in the high $40s.